Malibu Boats agrees to pay $100 million in Batchelder case

A 2014 propeller strike in Georgia claimed the life of 7 year old Ryan Batchelder.

In August 2021 Malibu Boats was found guilty in Superior Court of Rabun County Georgia. The Product Liability Case verdict totaled $200 million dollars.

Since then, Malibu Boats has been trying to reduce or eliminate the jury award.

Malibu Boats, Inc filed a Form 8-K with the Security and Exchange Commission dated June 30, 2023. 8-K forms are use to report significant events to shareholders.

The 8-K report announces Malibu Boats Inc and its subsidiary, Malibu Boats LLC have reached a settlement agreement with the Batchelder family in the legal case. Per the agreement, Malibu Boats will pay the Plaintiffs (the family of Ryan Batchelder) $100 million to finally end this product liability case.

Malibu will immediately pay $40 million. $60 million will be placed in escrow to be released to the Plaintiffs upon satisfaction of certain conditions.

The Product Liability Case focused on several aspects beyond just the propeller accident, including:

  • Product design
  • Product testing
  • Warnings
  • Taking water over the bow

However this is obviously the largest verdict / award ever made in a boat propeller accident.

2000 Malibu Response LX Courtesy

example of a 2000 Malibu Response LX

The Actual Announcement in Malibu Boats’ 8-K Report

Item 1.01. Entry into a Material Definitive Agreement.

As previously disclosed, Malibu Boats, Inc. (the “Company”) and its indirect wholly owned subsidiary, Malibu Boats, LLC (“Boats LLC”), are defendants in
the product liability case Batchelder et al. v. Malibu Boats, LLC, f/k/a Malibu Boats, Inc.; Malibu Boats West, Inc., et. al., Superior Court of Rabun County,
Georgia, Civil Action Case No. 2016-CV-0114-C (the “Batchelder I Matter”) and Boats LLC is also a defendant in a related product liability case, Stephan Paul
Batchelder and Margaret Mary Batchelder, as Natural Guardians of Josh Patrick Batchelder, a minor; Darin Batchelder, individually, and as Natural Guardian
of Zach Batchelder, a minor; and Kayla Batchelder v. Malibu Boats, LLC v. Dennis Michael Ficarra; State Court of Rabun County, Civil Action File No. 2022-
CV-0034 (the “Batchelder II Matter,” and together with the Batchelder I Matter, the “Batchelder Matters”). The Batchelder Matters involved a personal injury
accident in 2014 involving a 2000 model year Response LX boat that was manufactured by Malibu Boats West, Inc. (“West”). West is not, and has never been,
a subsidiary of the Company but was a separate legal entity whose assets were purchased by Boats LLC in 2006.

The Agreement

On June 30, 2023, the Company and Boats LLC entered into a Confidential General Release and Settlement Agreement (the “Settlement Agreement”), by and
among each of the plaintiffs in the Batchelder I Matter (the “Batchelder I Plaintiffs”) and the plaintiffs in the Batchelder II Matter (“the Batchelder II Plaintiffs,
and together with the Batchelder I Plaintiffs, the “Batchelder Plaintiffs”) in settlement of each of the Batchelder Matters. The Settlement Agreement provides
that, among other things, the Company, or Boats LLC, as the case may be, will pay (or cause to be paid) to the Batchelder Plaintiffs and their agents a total of
$100.0 million, of which (a) $40.0 million will be paid to the Batchelder Plaintiffs and their agents promptly following the execution of the Batchelder
Agreements and (b) $60.0 million will be placed in an escrow account and held by the Escrow Agent pursuant to the terms of an Escrow Agreement, which
amount will be released to the Batchelder Plaintiffs and their agents upon the satisfaction of certain conditions, as further described in the Settlement

The foregoing description of the Settlement Agreement is a summary and is qualified in its entirety by reference to the full text of the Settlement Agreement,
which is attached hereto as Exhibit 10.1, and such exhibit is incorporated herein by reference.

Item 2.02 Results and Operations and Financial Condition

As of July 3, 2023, the Company reaffirms its previously announced guidance for fiscal year 2023 net sales and Adjusted EBITDA margin. For fiscal year
2023, the Company anticipates net sales growth slightly over 10% year-over-year and Adjusted EBITDA margin down slightly year-over-year. The Company
expects to incur the full $100.0 million related to the settlement of the Batchelder Matters as a charge to net income for the fourth quarter of 2023. The
Company expects that all amounts paid by it with respect to the settlement of the Batchelder Matters should be tax deductible for federal and state income tax
purposes. The litigation settlement expense related to the Batchelder Matters will be excluded from net income in arriving at Adjusted EBITDA. See “NonGAAP Financial Measures” below for more information regarding Adjusted EBITDA.

Item 8.01 Other Events

Insurance Litigation

The Company and its subsidiaries, including Boats LLC, maintain liability insurance applicable to the Batchelder Matters.

On July 3, 2023, Boats LLC filed a complaint against Federal Insurance Company and Starr Indemnity & Liability Company alleging that the insurers
unreasonably failed to comply with their obligations by refusing, negligently and in bad faith, to settle covered claims within their available policy limits prior
to trial. The Company intends to vigorously pursue its claims against its insurers to recover the full settlement amount (less any monies already tendered
without reservation by the carriers). However, the Company cannot predict the outcome of such litigation.

Expected Borrowing under Revolving Credit Facility

On July 3, 2023, Boats LLC, an indirect subsidiary of the Company, notified its lenders that it intends to borrow $75.0 million under its revolving credit facility governed by the Third Amended and Restated Credit Agreement.

Malibu Boat’s Full SEC 8-K Report

The remainder of their SEC report provides the in-depth details of the settlement and of the conditions needed to release the escrow funds. It shows how much of the funds will be paid on a monthly basis to various individuals over a number of years.

The full report is available at: Malibu Boats SEC 9-K Filing 30 June 2023.

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